Inevitable increase: The Hindu Editorial on RBI’s interest rate hike
The HinduThe penny has dropped. After stubbornly holding off from acting to tame inflation, which has steadily eroded consumers’ purchasing power and derailed broader economic momentum, the RBI’s rate setting panel on Wednesday announced an ‘off-cycle’ increase in benchmark interest rates. RBI Governor Shaktikanta Das rationalised that letting inflation remain elevated at current levels for too long risked ‘de-anchoring inflation expectations’ and consequently hurting growth and financial stability. The IMF last month posited that the war in Ukraine was poised to not only slow global growth in 2022 but would also cause inflation to accelerate by 2.6 percentage points to 5.7% in advanced economies this year, and spur a more appreciable quickening of 2.8 percentage points in the case of emerging market and developing economies. With central banks in advanced economies led by the U.S. Federal Reserve pursuing a path of policy normalisation, the prospects of volatility in capital flows adding pressure on the exchange rate and consequently heightening the risks of imported inflation have also surely queered the pitch for the RBI.